So what’s left? Mostly SZ DJI Technology Co. Ltd., a private Chinese company that some analysts believe has a market share as high as 85%. DJI, with a valuation of $8 billion, says sales volume in 2015 was 100 times more than that of 2011. The company rose to popularity with its ready-to-fly Phantom drone, and recently introduced a wildly popular, foldable drone called the Mavic.

DJI’s popular Mavic drone

But there are other companies still fighting for the dwindling market share that DJI does not own. Mota Group Inc. hopes to go public with its lineup of cheaper drones. Yuneec International and Autel Robotics, both Chinese drone manufacturers, are solid contenders to hang on in the high-end drone fight with DJI, and they’re working to avoid or face down the many problems that damaged other competitors.

The DJI problem

One of the biggest challenges, drone manufacturers say, is keeping up with DJI’s rapid development pace and pricing approach.

In 2016, DJI launched the Mavic Pro and two versions of its Phantom 4 drones. The $1,399 Phantom 4 launched in March, revolutionary for its ability to sense objects and detect a path to safely fly around them. A similar yet more portable drone, the $999 Mavic Pro, launched in September. Showing its propensity to iterate and cut prices, DJI chopped the Phantom 4 price by $200 before launching an upgraded Pro version in November. DJI’s lowest-cost drone, the Phantom 3 Standard, which launched in August 2015 at $799, can now be found for as low as $399.

Other drone makers tend to feel more pain from DJI’s rapid price cuts, though. 3D Robotics noted that competitive pricing was a key reason for its failure.

“We got knocked down for a really simple reason: We made too many Solos, especially given how fast our competitors dropped prices and flooded the market,” former 3D Robotics president Jeevan Kalanithi wrote in an internal email obtained by MarketWatch.

3D Robotics’ Solo drone, which once retailed for $1,400, now sells for less than $300 on Amazon.

“DJI is crowding the market as best as they can,” said Shan Phillips, who was Yuneec’s chief executive when he spoke to MarketWatch in October. “If I were to think about any reasons that DJI did all those price cuts, it’s for that reason.”

While Yuneec would not disclose its financial performance, employees say Yuneec’s business strategy is to remain consistently profitable. But huge margin decreases have made it harder to be profitable now than even a year ago, Phillips said.

“Why has DJI, with 70% market share, been so aggressive on pricing?” Phillips said. “That is painful for everyone—more painful for some who have left the industry, but it’s hurting themselves the most. The company that sees the biggest impact to big price reductions is going to be the biggest player.”

Since MarketWatch’s October interview with Phillips, executives have changed their tune. Mike Kahn took over the CEO role for Yuneec USA on Nov. 28, and Phillips became a senior strategy adviser.

Kahn also says that Yuneec’s $400 ‘selfie’ drone, called the Breeze, which is geared more toward beginners, is different enough to compete with DJI. Kahn said that the Breeze is Yuneec’s best-selling drone by units, though the Typhoon is best-selling by revenue.

The hardware-development problem

A drone is not just a camera or just a robot, but a combination of many things.

“Drone hardware development is very difficult and resource-intensive,” Autel Robotics USA CEO Steve McIrvin said. “You have to be on the cutting edge of so many different fields—cameras, computer vision, deep learning, artificial intelligence—all highly technical fields.”

Bloomberg News/Landov

The X-Star drone, manufactured by Autel Robotics

Cramming high levels of processing power into one drone, both from a cost and a physical size standpoint, is tough. Making a simple and straightforward user interface that consumers feel confident using (and not crashing) is an added challenge.

3D Robotics struggled with the quality of its gimbal. GoPro made a simple structural misstep that caused the batteries to pop out midflight.

At Lily, founders promised a product that has proven impossible to produce. A viral video in May 2015 advertised water resistance, high quality video and the ability to take off and land from its owner’s hand. The company racked up a whopping $34 million in preorders, but in January 2017, announced it would be closing without shipping any product to customers.

“What Lily did, I don’t want to compare it to Enron, but they took $34 million in preorders and now they are calling off their product and facing a lawsuit,” Mota Chief Financial Officer Steven Siegel said.

Mota makes toy drones that generally cost less than $100. Siegel says one of the benefits of being a company in which “no one knows who we are” is that they don’t advertise products until they are ready for mass market.

“I’m just not going to show you a product until we have it and can prove we can get it from A to Z,” Mota spokesperson Jason Jepson said.

“Now you have 15,000 people who preordered but didn’t get a Lily drone, who are now hurt by the industry,” Siegel said. “If we come out with a new product, customers say, ‘how do we know we’re not getting another Lily?’”

The marketing problem

Yuneec was founded in 1999, initially manufacturing products sold under other brands, primarily Illinois-based radio control distributor Horizon Hobby. Yuneec was self-funded by Wenyan Jiang and her husband Tian Yu.

In 2015, Yuneec received $60 million in funding from Intel Corp.’s
INTC, +1.40%
venture-capital arm, with the chip maker at the time taking a 15% stake in Yuneec, Phillips said. That stake, which was not publicly disclosed, would suggest Yuneec was valued at $400 million.

After originally requesting that MarketWatch not publish Phillips’ disclosure on the stake Intel received for its investment, Yuneec claimed that the number was inaccurate. When repeatedly asked exactly how the number was inaccurate, a spokeswoman for the company refused to elaborate.

The Intel Capital investment helped put Yuneec’s name on the map, but the company still has not received household name status the likes of ‘DJI’ or ‘Phantom.’ Critics say the company’s biggest issues is marketing. Former employees say the company is hesitant to spend money on marketing, and instead spends most of its money on developing products.

Philips admitted in the 2016 interview that marketing is an area where Yuneec falls short, noting that for a long time Horizon Hobby handled marketing, so spending money there is not ingrained in Yuneec’s ecosystem.

“Marketing to consumers has not been something that many Chinese companies have been successful at dominating in any given industry,” Phillips said. “Marketing to the West—and not only to someone in San Francisco but someone in Stockholm—is different than marketing to someone in Asia.”

For one, the name Yuneec itself doesn’t translate well to an American audience. Even drone users don’t know how to pronounce it. (For the record, it’s pronounced like ‘unique.’)

Both Yuneec and Autel are marketing an area where DJI is seen as weak -- customer service -- though neither company would explicitly say the move is pointed at DJI. Yuneec promoted an expanded customer service program at CES in January.

“We are not competing with DJI,” Mota CEO Michael Faro said. “That corner of the market is filled.”

Mota’s executives say the company could offer its initial public offering in February, and said that one of its goals with the IPO are to turn Mota into a household name.

The funding problem

There is not a lot of investment going on in the drone industry right now. Financing for drone companies fell 59% year-over-year in the third quarter of 2016, and 48% from the previous quarter, according to CB Insights.

Instead of looking for more of the dwindling private investment, Mota is looking for public cash, though its financials may not help the cause. Mota’s 2016 revenue was $3.9 million, down more than 50% from 2015, and the company reported a loss of $2.4 million in its filing with the Securities and Exchange Commission.

Mota’s Siegel attributes the company’s performance in 2016 to preparations to go public.

“We took our eye off the ball,” he said. “We were so focused on the IPO that we forgot to sell.”

McIrvin said the company will invest “well over $10 million” doing research on processing technology and intends to add several hundred jobs. But even Autel has gone through a restructuring, laying off sales and marketing staff in a move to “shift resources,” McIrvin said.

“Drones are growing very rapidly in revenue, McIrvin said. “But we’re still in an investment phase overall.”

Former President and Chief Operating Officer of UBS Investment Bank Robert Wolf says he thinks drone hardware has been mostly commoditized. Wolf instead has his sights set on drones as a service. Wolf founded Measure, a nationwide service provider that flies drones for clients in a variety of industries. The Washington, D. C-based startup in January announced it raised $15 million in a Series B funding round.

Of course, while Measure uses a variety of drones depending on the project, Wolf said Measure’s pilots primarily fly DJI drones.

“There has been a shift in emphasis from investing in both the hardware and software to the service sector,” he said. Instead, now that quality hardware is on the market, Wolf is betting on the companies flying drones to be the ones making money.

“The maturation of the drone industry is progressing,” Wolf said. “Hardware has gone through its evolution. You can have great hardware, but if there isn’t someone flying it, it wouldn’t work too well.”

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